Kiddie Tax Guide

What the Kiddie Tax Is

The kiddie tax is a rule in IRC §1(g) that taxes a child's net unearned income above an annual threshold at the parent's marginal tax rate instead of the child's own, usually lower, rate. Congress added it in 1986 and broadened it over the years to stop families from shifting income-producing assets, such as stocks and bonds, into a child's name so the income would be taxed in the child's low bracket. The rule does not move the income to the parent's return; the child still files and reports it, but the tax on the slice above the threshold is figured using the parent's rate.

For 2025 and 2026 the threshold is $2,700, built as twice the $1,350 dependent standard deduction floor. The first $1,350 of a child's unearned income is wiped out by that standard deduction, the next $1,350 is taxed at the child's own 10% bracket, and everything above $2,700 is the net unearned income that gets the parent's rate. The tax is computed on Form 8615, which is attached to the child's Form 1040.

It is important to keep two ideas separate. The kiddie tax reaches only unearned income, which is generally investment income such as interest, dividends, and capital gains. A child's earned income, from a job, is always taxed at the child's own rate and never gets the parent's rate. Many families with a working teenager who also has a small brokerage account are surprised that only the investment side can be affected.

Who Is Subject: The Age and Support Tests

A child is subject to the kiddie tax for a year only if all of these are true: the child had more than $2,700 of unearned income, the child is required to file a return, at least one parent was alive at year-end, the child does not file a joint return, and the child meets one of three age tests measured at the end of the year:

• Under 18. Any child under age 18 at year-end is covered, regardless of how much they earned from a job.
• Age 18 with low earned income. A child who turns 18 during the year is covered only if their earned income was not more than half of their own support.
• Full-time student, age 19 to 23. A full-time student who is at least 19 and under 24 at year-end is covered if their earned income was not more than half of their support.

The support test is the key that releases older children. A child who is 18 or older and pays for more than half of their own support out of their earnings is not subject to the kiddie tax, even with large investment income. Support includes food, lodging, clothing, education, medical care, and similar costs; a scholarship received by a full-time student does not count as support the child provided.

Age is measured at the end of the tax year, with a special January 1 rule: a child born on January 1 is treated as reaching the next age on December 31 of the prior year. For example, a child born January 1, 2008, is treated as 18 at the end of 2025. The Student Tax Calculator covers the broader filing questions for students, and the Do I Need to File Taxes Calculator checks whether a child must file at all.

What Counts as Unearned Income

Unearned income is generally all taxable income other than wages, salary, and pay for work the child actually performed. The common types are:

• Taxable interest from bank accounts, CDs, and bonds.
• Dividends, both ordinary and qualified.
• Capital gains and capital gain distributions from mutual funds and brokerage accounts.
• Rents and royalties.
• Taxable scholarship and fellowship income not reported on a Form W-2.
• Unemployment compensation and the taxable part of pension, annuity, and trust distributions.

Earned income is the opposite: wages, salary, tips, and self-employment earnings for services the child performed. A subtle point is the qualified disability trust: a taxable distribution from one is treated as earned income on Form 8615 even though trust income is normally unearned. Nontaxable amounts, such as tax-exempt municipal bond interest and the nontaxable part of Social Security, are not counted at all.

Income produced by property belonging to the child is the child's unearned income even if a parent or grandparent gave the child the property. This is exactly the situation the kiddie tax was built for: a custodial UTMA or UGMA account funded by relatives throws off dividends and gains that are the child's unearned income, and once it tops $2,700 the kiddie tax applies.

The Two-Tier $2,700 Floor

The threshold is best understood as two stacked $1,350 tiers:

The $1,350 first tier comes from the dependent standard deduction floor under IRC §63(c)(5)(A), and the $2,700 threshold is simply twice that floor. Because the $1,350 floor is the same for 2025 and 2026, the $2,700 threshold is also the same for both years. A child whose unearned income is exactly $2,700 and who has no other income pays at most $135 (10% of the second $1,350) and never reaches the parent's rate.

A child who also has earned income gets a larger standard deduction. The dependent standard deduction is the greater of $1,350 or the child's earned income plus $450, capped at the single standard deduction ($15,750 for 2025, $16,100 for 2026). A bigger standard deduction shelters more of the child's total income, but it does not change the $2,700 line at which the parent's rate begins; that line is fixed.

How the Tax Is Calculated on Form 8615

Form 8615 walks through three stages. First it isolates the net unearned income above the threshold; then it taxes that slice at the parent's rate; finally it compares the result against the child's own-rate tax and takes the larger.

• Lines 1-5 - the net unearned income. Line 1 is the child's unearned income, line 2 is $2,700, and line 3 is the difference. Line 4 is the child's taxable income. Line 5 is the smaller of line 3 or line 4; that is the net unearned income taxed at the parent's rate. If line 5 is zero or less, there is no kiddie tax.
• Lines 6-13 - the tentative tax at the parent's rate. The form computes the tax on the parent's taxable income with the child's net unearned income added (line 9), subtracts the tax on the parent's taxable income alone (line 10), and the difference (line 11) is the extra tax caused by the child's investment income sitting in the parent's bracket. With a single child, the whole amount becomes the child's share on line 13.
• Lines 14-18 - the child's tax. The child's remaining taxable income (line 4 minus line 5) is taxed at the child's own rate (line 15). Adding the parent-rate tax (line 13) gives line 16. The child's tax (line 18) is the larger of line 16 or the tax on all the child's taxable income at the child's own rate (line 17).

The reason the form takes the larger of two computations is a safeguard: if the parent is actually in a lower bracket than the child, the child simply pays their own-rate tax and the kiddie tax adds nothing. In practice the parent is almost always in a higher bracket, so the kiddie-tax computation wins and the difference is the cost of the rule. The Kiddie Tax Calculator labels its output with these line numbers so you can trace each figure onto Form 8615.

Which Parent's Return to Use

Because the tax uses the parent's rate, the form needs one parent's taxable income. The rules pick that parent as follows:

• Married filing jointly: use the joint return.
• Married filing separately: use the return of the parent with the greater taxable income.
• Unmarried, divorced, or separated: use the custodial parent, the one the child lived with for the greater part of the year.
• Custodial parent remarried: use the stepparent's information; if the custodial parent and stepparent file jointly, use that joint return.

When more than one child of the same parent owes the kiddie tax, their net unearned income is pooled. The form figures one tentative tax at the parent's rate on the combined net unearned income of all the children, then allocates it back to each child in proportion to their share. This pooling can push the combined amount into a higher parent bracket than any one child would reach alone.

If the parent's information is not available by the filing deadline, the child can request an extension with Form 4868 (an extension to file, not to pay) or, as a last resort, request the parent's tax data from the IRS under §1(g). If the parent's income later changes, the child's tax must be refigured and amended on Form 1040-X.

Form 8615 vs Form 8814: The Parent Election

There are two ways to handle a child's investment income, and they are not interchangeable:

• Form 8615 is filed with the child's own return and computes the kiddie tax as described above. It is required whenever the child is subject to the kiddie tax and files their own return.
• Form 8814 is the parents' election to report the child's interest, ordinary dividends, and capital gain distributions on the parents' return, so the child does not file at all.

The Form 8814 election is available only in narrow circumstances: the child's gross income must be only from interest and dividends (including capital gain distributions), the total must be more than $1,350 and less than $13,500, and there can be no estimated tax payments or backup withholding in the child's name. When elected, the parents add a flat $135 (10% of the second $1,350 tier) plus the child's income over $2,700 to their own return.

The election trades convenience for potential cost. Reporting the child's income on the parents' return can raise the parents' adjusted gross income, which can reduce credits and deductions that phase out with income, and it taxes the child's income entirely at the parents' bracket above $2,700. The practical rule is to compute both: file Form 8615 on the child's return and compare it against the Form 8814 result before electing. The election usually only makes sense for small amounts where avoiding a separate filing is worth more than the extra tax.

Capital Gains, Qualified Dividends, and the NIIT

A crucial nuance is that the kiddie tax changes the bracket position of a child's income, not its character. Net long-term capital gains and qualified dividends keep their preferential 0/15/20% rate even when taxed at the parent's position in the brackets. Form 8615 routes that income through separate worksheets so it is not converted to ordinary income. This is why a child with $15,000 of long-term gains can owe far less kiddie tax than a child with $15,000 of bank interest, which is fully ordinary.

The calculator on this site treats all income as ordinary to keep the model transparent, which can overstate the tax when much of a child's unearned income is long-term gain or qualified dividends. For the preferential-rate side, model the income-tax treatment of a child's gains with the Qualified Dividends & Capital Gains Tax Calculator.

Separately, a child with very high investment income can owe the 3.8% Net Investment Income Tax on Form 8960. The NIIT applies when the child's modified adjusted gross income exceeds $200,000 (the single threshold) and they have net investment income. This is uncommon for children, but a large inherited brokerage account or a single big capital gain can reach it, and the NIIT is in addition to the kiddie tax, not instead of it. The Net Investment Income Tax Calculator and the Net Investment Income Tax Guide cover that surtax in full.

Planning Moves to Reduce the Kiddie Tax

Because the kiddie tax re-prices a slice of the child's income at the parent's rate, the planning levers focus on the kind and timing of the child's investment income:

• Favor growth over yield. Investments that grow in value but throw off little current interest or dividends defer income until the child sells, often in a year the child is out of the kiddie tax. Index funds and growth stocks generate less annual unearned income than bond funds and high-dividend portfolios.
• Use tax-advantaged vehicles. Money inside a 529 plan grows without throwing off the child's unearned income. The 529 Plan Tax Benefits Guide covers how that shelter works, and a custodial Roth IRA can hold a working child's earnings tax-free.
• Time gains for kiddie-tax-free years. Once a child ages out (an 18-or-older child who supports themselves, or any child age 24 and over), gains realized are taxed at the child's own rate. Deferring a large sale until then can move it out of the parent's bracket.
• Keep unearned income at or under $2,700. If a child's account can be managed to stay at or below $2,700 of annual unearned income, the parent's rate never applies. Splitting income-producing assets among more than one child can help, although pooling on Form 8615 limits the benefit for children of the same parent.
• Compare the Form 8814 election. For small interest-and-dividend amounts, check whether reporting on the parents' return costs less than a separate child filing.

Practitioner Insight (LMN Tax Inc.)

Real-World Scenarios

Scenarios treat the income as ordinary-rate. Long-term capital gains and qualified dividends can be taxed lower under the separate Form 8615 worksheets. Figures match the Kiddie Tax Calculator.

When the General Rules Do Not Apply

• Preferential-rate income. When much of a child's unearned income is long-term capital gain or qualified dividends, Form 8615 uses separate worksheets to keep the 0/15/20% rate, so a simple ordinary-rate estimate overstates the tax.
• More than one child. Two or more children of the same parent pool their net unearned income on line 7 to figure one tentative tax, then split it. The single-child shortcut does not apply.
• The child itemizes. A child who itemizes deductions directly connected to investment income can raise the line 2 amount above $2,700, lowering the slice taxed at the parent's rate.
• The Form 8814 election. If parents elect to report the child's income on their own return, a different computation applies (flat $135 plus the child's income over $2,700), available only for interest and dividends under $13,500.
• Alternative minimum tax. A child with tax-preference items, such as certain private-activity bond interest, can owe AMT on Form 6251 separate from the kiddie tax.
• Net Investment Income Tax. A child with very high investment income may also owe the 3.8% NIIT on Form 8960, which runs on modified AGI and is separate from the kiddie tax.
• State tax. The kiddie tax is federal. Some states tax a child's income differently or have their own version; check the state return separately.

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